The Chancellor’s Spring Budget 2023 did not contain any nasty surprises for private client practitioners with capital gains tax (“CGT“), inheritance tax (“IHT“) and income tax rates and allowances to remain as announced in the 2022 Autumn Statement, with freezes on allowances and thresholds across these taxes to go ahead as from 6 April 2023 as planned (as summarised here).
The main announcement of interest to private client and pension practitioners is the abolition of pension lifetime allowance (currently £1,073,100). It had been predicted that the allowance would be increased, but the abolition was one of the main surprises of the Budget. The Budget document states that the lifetime allowance charge will be removed from 6 April 2023, and abolished from April 2024. The annual allowance for pensions will also rise by £20,000 from £40,000 to £60,000 from 6 April 2023.
The abolition should have a positive impact on clients’ IHT and estate planning, as they will be able to better mitigate IHT by putting more into their pension pots, for longer, unrestricted by the current £1,073,100 cap.
The other announcements included in the Budget document and the documentation published alongside it are:
- CGT rules on divorce or separation – following the original policy announcement in November 2021, the government has confirmed that it will introduce legislation in the Finance Bill (No 2) 2023 to extend the “no gain, no loss” window the disposals between spouses on divorce, dissolution of civil partnership or separation. The changes will take effect from 6 April 2023. Capital Gains Tax – separation and divorce – GOV.UK (www.gov.uk)
- Simplification for trusts and estates– the government will introduce in Finance (No 2) Bill 2023 a package of simplification measures to prevent trustees and personal representatives of estates having to report small amounts of income tax to HMRC and make the process in which estate beneficiaries are taxed more straightforward. These measures will:
- provide that trusts and estates with income up to £500 do not pay tax on that income as it arises (to have effect from 6 April 2024);
- remove the default basic rate and dividend ordinary rate of tax that applies to the first £1,000 slice of discretionary trust income (to have effect from 6 April 2024);
- provide that beneficiaries of UK estates do not pay tax on income distributed to them that is within the £500 limit for the personal representatives (to have effect from 6 April 2024); and
- make technical amendments to ensure for beneficiaries of estates that their tax credits and savings allowance continue to operate correctly (to have effect from 6 April 2023). Simplifications for trusts and estates – GOV.UK (www.gov.uk)
- IHT reporting for non-taxpaying trusts – the Budget document states that HMRC intends to make changes to IHT regulations to remove non-taxpaying trusts from reporting requirements (para. 4.35 of the Budget document). There are no further details on these announcements that we can see at the moment but the IHT announcement may relate to the “excepted settlement” rules in Regulation 4(1), Inheritance Tax (Delivery of Accounts) (Excepted Settlements) Regulations 2008. Under these rules, trustees do not need to submit an IHT account if there is no tax to pay and the chargeable transfer is under the IHT nil-rate band, but there are a multitude of different conditions to fulfil, so this would seem an obvious area for simplification. The announcement may also (or alternatively) relate to the requirement for trustees to submit an account if there is no IHT to pay but an exemption is claimed (s.216(1)(b) and (c) IHTA 1984) but this looks less likely as it would not allow HMRC the ability to scrutinise the availability of the exemption.
- Agricultural property relief and woodlands relief – the government will restrict the scope of IHT agricultural property relief (“APR“) and woodlands relief to property in the UK from 6 April 2024 (para 4.33 of the Budget document). Currently, the reliefs apply to agricultural property and woodlands situated in the UK, the Channel Islands, the Isle of Man and the European Economic Area (“EEA“).
- Charity Taxes – the government will restrict charitable tax reliefs to UK charities and Community Amateur Sports Clubs only from April 2023. EU and EEA charities that HMRC has previously accepted as qualifying for charity tax reliefs before 15 March 2023, will have a transitional period until April 2024 (para. 4.34 of the Budget document).
- Taxation of carried interest – the government has announced that it will introduce an election to enable allow UK resident investment managers to make an election to accelerate their tax liabilities in respect of carried interest in order to align their timing with the position in other jurisdictions, where they may obtain double taxation relief. The measure will be implemented by the Finance (No 2) Bill 2023 and will apply from 6 April 2022. Elective accruals basis for the carried interest rules – GOV.UK (www.gov.uk)
- Taxation of UK investment funds – the government has announced that it will amend the “genuine diversity of ownership” (“GDO“) condition for the purposes of the non-resident CGT rules in respect of collective investment vehicles; as well as for the purposes of real estate investment trusts and qualifying asset-holding companies. The amendments provide that where an individual investment entity forms part of a wider fund arrangement, that entity can satisfy the GDO condition by reference to the arrangements as a whole (even if the individual entity would not satisfy the GDO condition when considered in isolation). The measure will be implemented by the Finance (No 2) Bill 2023 and will take effect from the date of Royal Assent. Amendments to the Genuine Diversity of Ownership condition – GOV.UK (www.gov.uk)
- CGT and share for share exchanges – the government has announced that it will make minor amendments to draft legislation on share for share exchanges in close companies to ensure that it works as intended. The legislation will be introduced in Finance (No 2) Bill 2023 and will ensure that non-domiciled individuals pay tax on value built up on UK company securities in the UK, even when those securities are exchanged for securities in an offshore holding company. The measure will have effect where the share exchanges are carried out on or after 17 November 2022. Capital Gains Tax: share or securities exchange – GOV.UK (www.gov.uk)
- Automatic Exchange of Tax Information – the government has announced some reforms to the legislation enabling automatic exchange of tax information between jurisdictions under regimes such as the Common Reporting Standard, FATCA and the OECD Mandatory Disclosure Rules (“MDR“). The changes will be introduced in Finance (No. 2) Bill 2023 and are as follows.
- The four existing powers that allow Automatic Exchange of Information (AEOI) regulations to be laid will be consolidated and the previous statute relating to those powers will be repealed. This simplifies the tax code by placing all powers to lay AEOI regulations in one place and will allow the government to implement future AEOI regimes more efficiently.
- The power to lay the MDR regulations will be subject to a technical amendment so that it works as intended. Automatic Exchange of Information (AEOI) powers consolidation and technical amendment to the OECD Mandatory Disclosure Rules primary power – GOV.UK (www.gov.uk)
- Tackling promoters of tax avoidance – The government will consult shortly on the introduction of a new criminal offence for promoters of tax avoidance who fail to comply with a legal notice from HMRC to stop promoting a tax avoidance scheme. The government will also consult on expediting the disqualification of directors of companies involved in promoting tax avoidance including those who exercise control or influence over a company (para. 4.40 of the Budget document).
- Freezing savings tax reliefs – The starting rate for savings will be frozen at £5,000, enabling individuals with less than £17,570 in employment income to receive up to £5,000 of savings income free of tax. Annual subscription limits for Junior Individual Savings Accounts (ISA) and Child Trust Fund accounts will remain at £9,000 and the annual subscription limit for adult ISAs will remain at £20,000 (para. 4.37 of the Budget document).
- Amending the Self-Assessment forms for cryptoassets – The government is introducing changes to the Self-Assessment tax return forms requiring amounts in respect of cryptoassets to be identified separately. The changes will be introduced on the forms for tax year 2024-25 (para. 4.42 of the Budget document).
- Capital gains assessment time period – The government will legislate to close an avoidance loophole that can leave HMRC out of time to assess tax due on capital gains when an asset is disposed of under an unconditional contract. The changes will apply in relation to contracts entered into on or after 1 April 2023 for corporation tax and 6 April 2023 for CGT (para. 4.44 of the Budget document).
- Tax Administration and Maintenance Day – The government will bring forward a further set of tax administration and maintenance announcements later in the spring at a Tax Administration and Maintenance Day (para. 4.97 of the Budget document).
It remains to be seen whether the “Tax Administration and Maintenance Day” later in the spring will include further announcements that affect private client practitioners.